I am more optimistic than Andrew is, even with data from the expansion of social insurance in the ‘aughts, for three reasons:

• There is significant evidence that higher spending on public health in particular lowers savings

• There are still significant gaps in China’s social safety net that could be filled in and thus there is scope to make China’s system of social insurance more generous.

• Many of China’s social insurance programs seem to take in more in contributions than they pay out in benefits. That is part of the reason why it isn’t a surprise that the expansion of social insurance, as they were designed, didn’t lower national savings. And it is also suggests there is scope to change the way social insurance is funded and in the process lower national savings.

Let me take each point in turn. …

Bottom line: A broad redesign of China’s system of social insurance seems to offer potential to lower China’s level of savings.

These issues here of course are complex: the balance between social insurance and incentives to work; the balance between a pay-go system and a funded system; and the question of how to split cost and responsibilities between municipality, province and the central government.

Yet it still seems, from affair, that there is room to reform China’s system of social insurance in ways that would provide stronger and more consistent coverage, with more portable benefits, ideally financed through a more progressive system of taxation.

And in the interim, well, China’s central government has ample fiscal space and could easily pick up more of the tab – allowing contributions to be cut temporarily. That seems like a healthier way of providing short-term stimulus than another round of credit loosening. It does, though, require tolerance of bigger central government fiscal deficits.